Gregory Birmingham v. PNC Bank, N.A.

Filing

AMENDED OPINION filed amending and superseding opinion dated 01/18/2017. Originating case number: 8:15-cv-00108-PWG,14-18432,14-00378 Copies to all parties.. [15-1800]

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-1800

In Re:

GREGORY BIRMINGHAM,
Debtor.

-------------------------GREGORY BIRMINGHAM,
Plaintiff - Appellant,
v.
PNC BANK, N.A.,
Defendant - Appellee.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Paul W. Grimm, District Judge. (8:15cv-00108-PWG; 14-18432; 14-00378)

Argued:

October 26, 2016
Amended:

Decided:

January 18, 2017

January 20, 2017

Before THACKER and HARRIS, Circuit Judges, and Gerald Bruce LEE,
United States District Judge for the Eastern District of
Virginia, sitting by designation.

Affirmed by published opinion. Judge Lee wrote the opinion, in
which Judge Harris and Judge Thacker joined.

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ARGUED: John Douglas Burns, THE BURNS LAW FIRM, LLC, Greenbelt,
Maryland, for Appellant.
Daniel J. Tobin, BALLARD SPAHR LLP,
Washington, D.C., for Appellee.
ON BRIEF: Bryan J. Harrison,
Matthew G. Summers, BALLARD SPAHR LLP, Baltimore, Maryland, for
Appellee.

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LEE, District Judge:
The anti-modification clause in 11 U.S.C. § 1322(b)(2) of
the Bankruptcy Code protects a mortgagee from having its claim
in a Chapter 13 bankruptcy proceeding modified, if the mortgage
is secured “only by a security interest in real property that is
the debtor’s principal residence.”

11 U.S.C. § 1322(b)(2).

The

issue in this appeal is whether reference in the Deed of Trust
to escrow funds, insurance proceeds, or miscellaneous proceeds
constitute

additional

collateral

purposes of § 1322(b)(2).
incidental

property,

modification

incidental

property

for

We hold that these items constitute

which

protection

or

entitles

under

§

Appellee

1322(b)(2).

to

The

antidistrict

court’s determination is therefore affirmed.
I.
On

May

23,

(“Birmingham”)
bankruptcy.

2014,

filed

a

J.A. 342-45.

Appellant
voluntary

Gregory
petition

John
for

Birmingham
Chapter

13

One of the claims against Birmingham

is a mortgage in the amount of $343,101.87 held by Appellee PNC
Bank, N.A. (“PNC”), and secured by a deed of trust (“Deed of
Trust”)
Lane,

on

Birmingham’s

Beltsville,

primary

Maryland

residence

20705

at

11721

(“Property”).

Chilcoate
J.A.

329.

According to the District of Maryland Claims Register, there is
an arrearage on the mortgage of $93,386.58 as of June 23, 2015.
J.A. 329.
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Birmingham filed his Original Chapter 13 Bankruptcy Plan on
June 4, 2014.

J.A. 378.

At that point in time, the Property

was valued at only $206,400.

J.A. 362.

The Bankruptcy Plan

included a cram-down of PNC’s interest in the Property.
385-86.

J.A.

After a series of objections and amendments to the

Bankruptcy Plan, Birmingham filed a Complaint for Declaratory
Action pursuant to 28 U.S.C. §§ 2201-2202; 11 U.S.C. §§ 105(a),
506(a), 2201 (11721 Chilcoate Ln Beltsville, MD 20705).
378-400.
that

J.A.

Birmingham’s Complaint requested a declaration that

PNC’s

claim

be

treated

subject to modification.

as

a

partially

unsecured

claim

J.A. 399-400.

Birmingham argued that certain provisions of the Deed of
Trust required collateral other than real property, which would
remove the claim from 11 U.S.C. § 1322(b)(2)’s anti-modification
protection.

J.A.

397-99.

Birmingham

cited

three

specific

provisions of the Deed of Trust, involving escrow items (Section
Three),

property

insurance

proceeds

miscellaneous proceeds (Section Eleven).

(Section

Five),

and

J.A. 398.

PNC filed a

Motion to Dismiss the Adversary Complaint and an accompanying
memorandum, contending that the items referred to in the Deed of
Trust

provisions

property,”

which

cited
is

by

part

Birmingham
of

a

constituted

debtor’s

principal

“incidental
residence.

J.A. 674. Consequently, PNC argued that the additional items
would not expose the PNC mortgage to a cram-down.
4

J.A. 674.

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After

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Birmingham

filed

a

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response

to

the

motion

to

dismiss,

Bankruptcy Judge Wendelin I. Lipp granted the motion, noting
that

“the

issues

raised

by

[Birmingham]

were

identical

to

arguments that repeatedly have been denied by the Bankruptcy
Court for this District.”

J.A. 674.

Birmingham then appealed the Bankruptcy Court’s decision to
the United States District Court for the District of Maryland.
J.A.

405.

namely

Birmingham

that

the

raised

inclusion

the

of

same

arguments

miscellaneous

on

appeal,

proceeds,

escrow

funds, and insurance proceeds in the Deed of Trust constitute a
waiver

of

the

1322(b)(2).

J.A.

bankruptcy
proceeds,

anti-modification

court’s
escrow

422.

The

decision,
funds,

provision
district

holding

and

court

that

insurance

of

the

11

U.S.C.

affirmed

§
the

miscellaneous

proceeds

provisions

describe “benefits which are merely incidental to an interest in
real property” and generally are not “additional security for
purposes

of

§

1322(b)(2).”

J.A.

679.

The

district

court

further noted that the items at issue do not “have any value of
their own separate and apart from the Property and the [PNC Deed
of Trust]; to the contrary, they all exist only to give effect
to

the

PNC’s

security

interest,

which

otherwise

could

be

frustrated by a superior lien or by destruction or condemnation
of the Property.”

J.A. 681.

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Birmingham filed a timely appeal before this circuit.
685-88.

J.A.

This case was consolidated with a nearly identical case

that similarly originated in the District Court of Maryland,
Akwa v. Residential Credit Solutions, Inc., No. 14-cv-02703-GJH,
530 B.R. 309 (D. Md. 2015).
February

16,

2016.

ECF

The Akwa appeal was dismissed on

No.

69-2.

Accordingly,

only

the

Birmingham appeal is currently before the Court.
II.
This dispute requires us to determine whether the district
court properly concluded that the bankruptcy court did not err
in

dismissing

Specifically,

we

the

adversary

are

to

proceedings

analyze

whether

against

the

PNC.

district

court

correctly affirmed the bankruptcy court’s finding that PNC is
entitled to the anti-modification protections of 11 U.S.C. §
1322 (b)(2).
Because the district court sits as an appellate tribunal in
bankruptcy,
plenary.
Properties

our

review

of

the

district

court’s

decision

is

Bowers v. Atlanta Motors Speedway (In re Se. Hotel
Ltd.

P’ship),

(citation omitted).

99

F.3d

151,

154

(4th

Cir.

1996)

“We apply the same standard of review as

the district court applied to the bankruptcy court’s decision.”
Id.

“Findings

conclusions

of

of

fact

are

reviewed

law

are

reviewed

omitted).
6

de

for
novo.”

clear
Id.

error,

and

(citation

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A.
The

bankruptcy

Birmingham’s
12(b)(6).

court

complaint
J.A.

granted

PNC’s

under

Federal

The

district

675.

motion

Rule

of

court

to

Civil

dismiss
Procedure

applied

this

standard of review to the bankruptcy court’s decision.

same

Id.

A motion to dismiss under Federal Rule of Civil Procedure
12(b)(6) tests the legal sufficiency of the complaint.
v. Allain, 478 U.S. 265, 283 (1986).
granted

unless

relief.”

the

complaint

Papasan

The motion should be

“states

a

plausible

claim

for

Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012)

(citing

Ashcroft

v.

Iqbal,

556

U.S.

662,

679

(2009)).

In

considering a Rule 12(b)(6) motion, the Court “must accept as
true all of the factual allegations contained in the complaint,”
drawing “all reasonable inferences” in the non-moving party’s
favor.

E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc.,

637 F.3d 435, 440 (4th Cir. 2011) (citations omitted).
court

is

not

obligated

conclusions

drawn

Freightliner

LLC,

from
550

to

assume
the

F.3d

the

facts

369,

374

veracity
alleged.

(4th

Cir.

of

the

The
legal

Adcock
2008)

v.

(citing

Dist. 28, United Mine Workers of Am., Inc. v. Wellmore Coal
Corp., 609 F.2d 1083, 1085-86 (4th Cir. 1979)).
The complaint must contain sufficient factual allegations,
taken as true, “to raise a right to relief above the speculative
level” and “nudge [the] claims across the line from conceivable
7

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to plausible.”

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Vitol, S.A. v. Primerose Shipping Co., 708 F.3d

527, 543 (4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly,
550

U.S.

544,

555,

570

(2007)).

The

facial

plausibility

standard requires pleading of “factual content that allows the
court to draw the reasonable inference that the defendant is
liable

for

the

misconduct

Charlottesville,

708

F.3d

Iqbal, 556 U.S. at 678).
not

a

probability

alleged.”
549,

554

Clatterbuck
(4th

Cir.

v.

City

2013)

of

(quoting

The plausibility requirement imposes

requirement

but

rather

a

mandate

that

a

plaintiff “demonstrate more than a ‘sheer possibility that a
defendant has acted unlawfully.’”

Francis v. Giacomelli, 588

F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678).
Accordingly,

a

complaint

is

insufficient

if

it

relies

upon

“naked assertions” and “unadorned conclusory allegations” devoid
of

“factual

complaint

enhancement.”

must

present

Id.

“‘enough

(citations
facts

to

omitted).

raise

a

The

reasonable

expectation that discovery will reveal evidence’ of the alleged
activity.”

US Airline Pilots Ass’n v. Awappa, LLC, 615 F.3d

312, 317 (4th Cir. 2010) (quoting Twombly, 550 U.S. at 556).
In addition to the complaint, the court will also examine
“documents
well

as

incorporated

those

Clatterbuck,

matters

708

F.3d

into

the

properly
at

557

complaint
subject

(citations

by

to

reference,”

judicial

omitted);

as

notice.

see

also

Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d
8

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172, 176 (4th Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. 308, 322 (2007)).
B.
Certain provisions of the Bankruptcy Code are relevant to
this

appeal.

“Under

Chapter

13

of

the

Bankruptcy

Code,

individual debtors may obtain adjustment of their indebtedness
through

a

court.”

flexible

repayment

plan

approved

by

a

bankruptcy

Nobelman v. Am. Sav. Bank, 508 U.S. 324, 327 (1993).

The relationship between 11 U.S.C. § 506(a) and § 1322(b)(2) is
pertinent

to

this

circuit’s

decision

to

affirm

the

Birmingham’s complaint.

review

of

bankruptcy

the

district

court’s

court’s

dismissal

of

Section 506(a) is used in conjunction

with § 1322 to allow modification, or bifurcation, of a secured
creditor’s claim into secured and unsecured portions when the
claim exceeds the value of the secured property.

Nobelman, 508

U.S. at 328.
In Nobelman, the Supreme Court examined the nexus between
claim-bifurcation

under

§

506(a)

and

the

anti-modification

provision of § 1322(b)(2) to ascertain whether a debtor could
bifurcate

a

single,

under-secured

residential

mortgage

into secured and unsecured components pursuant to § 506(a).
at 326.

claim
Id.

The debtor in Nobelman argued that § 1322(b)(2)’s anti-

modification provision applied only to the secured component of
her mortgage claim, as defined in § 506(a).
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Id.

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Section 506(a) states that:
(a)(1) An allowed claim of creditor secured by a lien
on property in which the estate has an interest . . .
is a secured claim to the extent of the value of such
creditor’s interest in the estate’s interest in such
property . . . and is an unsecured claim to the extent
that the value of such creditor’s interest is less
than the amount of such
allowed claim.
Such value
shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of
such property, and in conjunction with any hearing on
such disposition or use or on a plan affecting such
creditor’s interest.
11 U.S.C. § 506(a).

Accordingly, under § 506(a), “an allowed

claim secured by a lien on the debtor’s property is a secured
claim to the extent of the value of the property; to the extent
the claim exceeds the value of the property, it is an unsecured
claim.”

Nobelman, 508 U.S. at 328 (internal quotation marks

omitted).
Notwithstanding, § 1322(b)(2) provides:
(b) Subject to subsections (a) and (c) of this
section, the plan may—
. . .
Modify the rights of holders of secured claims,
other than a claim secured only by a security
interest in real property that is the debtor’s
principal residence . . . .
11

U.S.C.

precludes

§

1322(b)(2).

reduction

or

This

cramming

“anti-modification”
down

the

value

of

provision
a

claim

secured by an interest in real property that is the debtor’s
principal residence.

In other words, a claimant’s interest in
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real property that is secured solely by the debtor’s principal
residence may not be bifurcated.
C.
Congress clarified the meaning of a key term in the antimodification

clause,

“debtor’s

principal

residence,”

in

the

Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCP
Act”) of 2005.

The Bankruptcy Code now defines the term as “a

residential structure if used as the principal residence by the
debtor, including incidental property, without regard to whether
that

structure

is

attached

101(13A)(A)(emphasis

to

real

property.”

The

BAPCP

added).

Act

11
also

U.S.C.

§

defined

“incidental property,” as it relates to a debtor’s principal
residence, as follows:
(A) property commonly
residence in the area
located;

conveyed with a principal
where the real property is

(B) all easements, rights, appurtenances, fixtures,
rents, royalties, mineral rights, oil or gas rights or
profits, water rights, escrow funds, or insurance
proceeds;
(C) all replacements or additions.
11 U.S.C. § 101(27B).

The Code defines a security interest as a

“lien created by an agreement.”

11 U.S.C. § 101(51).

Moreover,

a lien is defined as a “charge against or interest in property
to secure a payment of a debt or performance of an obligation.”
11 U.S.C. § 101(37).

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this

framework

in

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mind,

and

for

the

reasons

that

follow, we hold that the district court’s decision to affirm the
bankruptcy

court’s

correct.

PNC’s

dismissal
loan

principal

residence

Bankruptcy

Code’s

and

of

Birmingham’s

was

secured

not

any

solely

additional

anti-modification

complaint
by

bifurcation sought by Birmingham.

Birmingham’s

collateral.

provision

was

The

precluded

the

Consequently, Birmingham’s

complaint was appropriately dismissed.
III.
The Birmingham Deed of Trust not only grants PNC a security
interest

in

protections
protections

the
for
are

Property,
PNC.

not

but

However,

additional

also

provides

saliently,

collateral

and

the
do

additional
auxiliary
not

remove

PNC’s claim from the protection of § 1322(b)(2).
A.
Of

particular

importance

to

this

Court’s

analysis

are

Sections 3, 5, and 11 of the Deed of Trust, all of which will be
analyzed in turn.

Section 3 of the Deed of Trust pertains to

escrow funds and states, in pertinent part, the following:
Funds for Escrow Items. Borrower shall pay to Lender
on the day Periodic Payments are due under the Note,
until the Note is paid in full, a sum (the “Funds”) to
provide for payment of amounts due for: (a) taxes and
assessments and other items which can attain priority
over this Security Instrument as a lien or encumbrance
on the Property; (b) leasehold payments or ground
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rents on the Property, if any; (c) premiums for any
and all insurance required by Lender under Section 5;
and (d) Mortgage Insurance Premiums, if any, or any
sums payable by
Borrower to Lender in lieu of the
payment
of
the
Mortgage
Insurance
premiums
in
accordance with the provisions of Section 10.
These
items are called “Escrow Items.”
. . .
If there is a surplus of Funds held in escrow, as
defined under [the Real Estate Settlement Procedures
Act (“RESPA”)], Lender shall account to Borrower for
the excess funds in accordance with RESPA.
If there
is shortage of funds held in escrow, as defined under
RESPA, Lender shall notify Borrower as requested by
RESPA, and Borrower shall pay to Lender the amount
necessary to make up the shortage in accordance with
RESPA, but in no more than 12 monthly payments.
Deed of Trust § 3, J.A. 621-22.
Section

5

of

the

Deed

of

Trust

addresses

the

topic

property insurance, and provides as follows:
Borrower shall keep the improvements now existing or
hereafter erected on the Property insured against loss
by fire, hazards included within the term “Extended
coverage,” and any other hazards including, but not
limited to, earthquakes and floods, for which Lender
requires insurance . . . .
If Borrower fails to maintain any of the coverage
described above, Lender may obtain insurance coverage,
at Lender’s option and Borrower’s expense.
Lender is
under no obligation to purchase any particular type or
amount of coverage.
Therefore, such coverage shall
cover Lender, but might or might not protect Borrower,
Borrower’s equity in the Property, or the contents of
the Property, against any risk, hazard or liability
and might provide greater or lesser coverage than was
previously in effect.
. . . .
Borrower hereby assigns to Lender (a) Borrower’s
rights to any insurance proceeds in an amount not to
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exceed the amounts unpaid under the Note or this
Security Instrument, and (b) any other of Borrower’s
rights (other than the right to any refund of unearned
premiums
paid
by
Borrower)
under
all
insurance
policies covering the Property, insofar as such rights
are applicable to the coverage of the Property.
Lender may use the insurance proceeds either to repair
or restore the Property or to pay amounts unpaid under
the Note or this Security Instrument, whether or not
then due.
Deed of Trust § 5, J.A. 623-24.
Lastly,

Section

11

of

the

Deed

of

Trust

discusses

miscellaneous proceeds and contains the following language:
Assignment of Miscellaneous Proceeds; Forfeiture.
Miscellaneous Proceeds are hereby assigned to
shall be paid to Lender.

All
and

. . . .
In the event of a partial taking, destruction, or loss
in value of the Property in which the fair market
value of the Property immediately before the partial
taking, destruction, or loss in value is less than the
amount of the sums secured immediately before the
partial taking, destruction, or loss in value, unless
the Borrower and Lender otherwise agree in writing,
the Miscellaneous Proceeds shall be applied to the
sums secured by this Securing Instrument whether or
not the sums are then due.
Deed of Trust § 11, J.A. 626.
Miscellaneous Proceeds include:
[A]ny compensation, settlement, award of damages, or
proceeds paid by any third party (other than insurance
proceeds paid under the coverages described in Section
5) for: (i) damage to, or destruction of, the
Property; (ii) condemnation or other taking of all or
any part of the Property; (iii) conveyance in lieu of
condemnation;
or
(iv)
misrepresentations
of,
or
omission as to, the value and/or condition of the
Property.
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Deed of Trust ¶ M.
The issue presented is whether these provisions of the Deed
of Trust constitute sufficient collateral so that PNC’s interest
is secured by more than Birmingham’s principal residence.
hold

that

the

aforementioned

provisions

do

not

We

entitle

Birmingham to the bifurcation sought.
B.
Birmingham argues that Sections 3, 5, and 11 of the Deed of
Trust provide additional security for PNC’s interest such that
it is no longer secured solely by an interest in real property.
Appellant Br. at 19-25.

These items, however, are incidental

property frequently conveyed in a deed of trust and defined in
11 U.S.C. §§ 101(27B) and 101(13A)(A) as part of a debtor’s
principal residence.
The case Allied Credit Corp. v. Davis (In re Davis), 989
F.2d 208 (6th Cir. 1993) is illustrative.

There, the Sixth

Circuit found that “[i]tems which are inextricably bound to the
real property itself as part of the possessory bundle of rights”
do not extend a lender’s security beyond the real property.
at 213; see also Akwa, 530 B.R. at 313 (D. Md. 2015).
topic

of

insurance,

the

Davis

court

explained

that

Id.

On the
“hazard

insurance is merely a contingent interest — an interest that is
irrelevant until the occurrence of some triggering event and not
an

additional

security

interest
15

for

the

purposes

of

§

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1322(b)(2).”
(emphasis

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Pg: 16 of 24

In re Davis, 989 F.2d at 211 (citation omitted)

added).

This

reasoning

similarly

applies

to

miscellaneous proceeds and escrow funds that are tied to the
real property at issue.

See In re Ferandos, 402 F.3d 147, 156

(3d Cir. 2005) (“[F]unds for taxes and insurance, paid over and
placed in escrow, exist precisely for the purpose of paying said
taxes

and

connection

insurance
with

the

—

a

cost

ownership

incurred

of

real

by

the

property.”);

debtor
see

in
also

Kreitzer v. Household Realty Corp. (In re Kreitzer), 489 B.R.
698, 703-06 (Bankr. S.D. Ohio 2013) (holding that a security
interest which residential mortgage lender took in miscellaneous
proceeds was not an additional security interest that the lender
possessed

other

than

in

the

residential

mortgage

property

itself).
The

district

court

in

Akwa,

which

involved

the

same

standard Fannie Mae/Freddie Mac deed of trust that is at issue
in this appeal, correctly noted:
[T]he lender may collect funds for escrow to ensure
that all property-related payments, like taxes and
ground rents, are paid.
Likewise, the Deed of Trust
also permits the lender to hold insurance proceeds if
an insurer pays for repairs to the house to ensure
that the lender’s investment — the real property — is
repaired to lender’s satisfaction.
The same is true
for miscellaneous proceeds paid by a third party,
which the lender can use for repairs or restoration.
Akwa, 530 B.R. at 313-14.

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PNC

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accurately

states

Pg: 17 of 24

that

this

perspective

has

been

recognized by a number of courts in analogous circumstances.
See Abdosh v. Ocwen Loan Servicing (In re Abdosh), 513 B.R. 882,
886 (Bankr. D. Md. 2014), aff’d sub nom. Abdosh v. Ocwen Loan
Servicing, LLC, No. CIV. PJM 14-2916, 2015 WL 4635103 (D. Md.
July 30, 2015) (noting that “[t]here is no need to re-visit in
detail this clear legal issue”); In re Kreitzer, 489 B.R. at
703-06 (discussing miscellaneous proceeds); In re Mullins, No.
11-11176C-13G, 2012 WL 2576625, at *2 (Bankr. M.D.N.C. July 3,
2012) (discussing escrow funds); In re Inglis, 481 B.R. 480,
482-83 (Bankr. S.D. Ind. 2012) (“[U]nder the express terms of
these provisions . . . a lender does not lose its § 1322(b)(2)
protection
‘escrow

by

taking

funds’

a

security

are

part

of

interest

the

in

‘incidental

escrow

funds

property’

as

which

comprise ‘the debtor’s principal residence.’”); In re Leiferman,
No. BR 10-40718, 2011 WL 166170, at *2 (Bankr. D.S.D. Jan 19,
2011) (analyzing miscellaneous proceeds).
In his opposition, Birmingham cites a series of cases where
courts

have

held

that

beyond real property.

certain

additional

collateral

existed

For instance, Birmingham cites the Third

Circuit’s decision Hammond v. Commonwealth Mortg. Corp. of Am.,
27 F.3d 52 (3d Cir. 1994) for the proposition that “supplemental
collateral in a deed of trust will cause a waiver of the antimodification rights of 11 U.S.C. § 1322(b).”
17

Appellant Br. at

Appeal: 15-1800

Doc: 81

43-44.

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Pg: 18 of 24

However, the lien in Hammond explicitly “covered more

than the real property.” See Abdosh, 513 B.R. at 886.
The security contrivance in Hammond created “an additional
security

interest

in:

any

and

all

appliances,

machinery,

furniture and equipment (whether fixtures or not) of any nature
whatsoever.”

Hammond,

marks omitted).

27

F.3d

at

53-54

(internal

quotation

Here, the Deed of Trust does not expressly

attempt to take a security interest in additional collateral.
As

the

Akwa

provisions

court

concluded,

“explicitly

ties

the

the

language

funds

to

found

in

ensuring

that

lender’s collateral — the real property — is preserved.”
530 B.R. at 313.

these
the

Akwa,

Accordingly, Birmingham’s reliance on Hammond

is misplaced.
Relatedly, Birmingham’s arguments premised on the holdings
of other cases cited in his brief are inapposite for the same
reason: the security instruments at issue explicitly granted the
debtee an interest secured by more than just real property.

For

example, In re Ennis – in which we found the anti-modification
clause of § 1322(b)(2) inapplicable to a security agreement for
personal

property,

provides

no

i.e.

guidance

for

a

mobile
a

home

home

on

mortgage

leased
that

property

includes

–

the

typical incidental benefits intended to protect the interest in
real property.

See Ennis v. Green Tree Servicing, LLC (In re

Ennis), 558 F.3d 343, 347 (4th Cir. 2009); see also Scarborough
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v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d
406, 412 (3d Cir. 2006) (holding that when a mortgage lender
takes

an

interest

in

real

property

that

includes

income

producing property, the lender’s interest is also secured by
property that is not the debtor’s principal residence, and its
claim may be modified); Lomas Mortg., Inc. v. Louis, 82 F.3d 1,
7

(1st

Cir.

modification

1996)
of

a

(finding
secured

that

claim

§
on

1322(b)(2)
a

does

multi-unit

not

property

bar
in

which one unit is debtor’s principal residence and the security
interest

extends

to

other

income-producing

units);

Sapos

v.

Provident Inst. of Sav. in Town of Boston, 967 F.2d 918, 921 (3d
Cir.

1992)

(holding

that

the

anti-modification

provision

is

inapplicable where the note was also secured by wall-to-wall
carpeting, rents, and profits), overruled on other grounds by
Nobelman

v.

Commonwealth

Am.

Sav.

Mortg.

Bank,

Corp.,

508

895

U.S.

F.2d

324

123,

(1993);
128

(3d

Wilson
Cir.

v.

1990)

(finding § 1322(b)(2) not applicable where a mortgage agreement
stated that the lender had “a security interest in appliances,
machinery,

furniture,

and

equipment”),

abrogated

on

other

grounds by Nobelman, 508 U.S. 324.
Sections 3, 5, and 11 of the Deed of Trust do not create
‘‘separate or additional security interest[s], but [are] merely
[] provision[s] to protect the lender’s security interest in the
real property.’’

Akwa, 530 B.R. at 314 (quoting In re Kreitzer,
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489 B.R. 698, 705-06).
found,

as

proceeds,

a

matter

and

Pg: 20 of 24

Accordingly, the district court properly
of

law,

miscellaneous

that

escrow

proceeds

are

funds,

insurance

incidental

property

that do not constitute separate security interests.
C.
Birmingham

additionally

relies

on

a

line

of

cases

from

North Carolina bankruptcy courts that ostensibly found “where an
assignment of alternative collateral exists in a deed of trust
other

than

real

property,

the

lender

modification of its secured debt.”

will

be

subject

to

Appellant Br. at 26 (citing

In re Bradsher, 427 B.R. 386 (Bankr. M.D.N.C. 2010); Bradshaw v.
Asset Ventures, LLC (In re Bradshaw), Nos. 13-06176-8-RDD, 1400023-8-RDD, 2014 WL 2532227 (Bankr. E.D.N.C. June 4, 2014); In
re Murray, No. 10-10125-8-JRL, 2011 WL 5909638 (Bankr. E.D.N.C.
May

31,

2011);

In

re

Martin,

444

B.R.

538

(Bankr.

M.D.N.C.

2011); In re Hughes, 333 B.R. 360 (Bankr. M.D.N.C. 2005)).

As

the district court in this case correctly stated, however, the
loan documents in both Bradsher and Hughes “expressly provided
that

escrow

loan.”

payments

constituted

additional

security

for

the

J.A. 680 (citing Bradsher, 427 B.R. at 388-89 (“[T]he

loan documents purport to provide a security interest for the
indebtedness secured by the deed of trust in escrow funds in
addition

to

a

security

interest

in

the

residential

land

and

housing structure.”); Hughes, 333 B.R. at 363 (noting that the
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loan documents “require the borrower to pledge the escrow funds
as ‘additional security’”)). Hence, the language of the loan
documents

in

both

Bradsher

and

Hughes

is

unequivocally

distinguishable from the language present in the Birmingham Deed
of Trust.

The holdings of Bradsher and Hughes therefore do not

apply to this case.
Moreover,

in

Mullins,

the

same

judge

who

presided

over

Bradsher held that nothing in the deed of trust “suggests that a
security interest is also being granted in escrow funds.

Nor is

there any language in the escrow provisions [] purporting to
create a security interest in escrow funds to be paid by the
[debtors].”

In re Mullins, 2012 WL 2576625 at *2.

Further, in

Bynum v. CitiMortgage, Inc. (In re Bynum), Nos. 12-10660, 122031,

2012

WL

2974694

(Bankr.

M.D.N.C.

July

19,

2012),

the

bankruptcy judge found that a standard Fannie Mae/Freddie Mac
deed of trust “do[es] not contain elements required to create a
security interest in Escrow Funds.”
To

the

extent

that

Id. at *3.

Birmingham

also

relies

upon

In

re

Daniels, No. 15-666-5-SWH, 2015 WL 9283153 (Bankr. E.D.N.C. Dec.
18, 2015), a case that addresses the district court decision
that is currently before us, the Court in Daniels stated that
“Birmingham

involved

a

deed

of

trust

that

did

not

contain

explicit language creating a security interest in escrow funds.”
Id. at *3 (citation omitted).

Highlighting this difference, the
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Court in Daniels found that “Birmingham’s rejection of Bradsher
and Murray is not instructive.”

Id.

In short, the North Carolina bankruptcy courts agree that
the anti-modification clause applies to the Fannie Mae/Freddie
Mac Deed of Trust before us in this case.

We thus have no

occasion

to

consider

–

language

in

a

deed

the

effect

purporting

to

–

if

any

create

a

of

additional

separate

security

interest in escrow funds, insurance proceeds, or miscellaneous
proceeds, in light of our interpretation of § 1322(b)(2).
D.
Birmingham also argues that both the bankruptcy court and
the

district

court

should

have

looked

to

Maryland

law

to

determine whether the Deed of Trust created additional security
interests in escrow funds, insurance proceeds, and miscellaneous
proceeds

as

Bankruptcy

“real
Code,

property.”
however,

Appellant
explicitly

Br.

at

defines

21-24.

The

“incidental

property” to a debtor’s principal residence, which includes both
escrow

funds

and

insurance

proceeds.

11

U.S.C.

§

101(27B).

State laws are suspended if they conflict with the Bankruptcy
laws.

Butner v. U.S., 440 U.S. 48, 54 n.9 (1979).

Thus, it is

not necessary for us to examine Maryland law on this issue.
Even if Maryland law were to apply, it is far from clear
that the resulting holding would be favorable for Birmingham.

A

security interest is created, under Maryland law, when there is
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language present in the security instrument that leads to the
logical conclusion that it was the intention of the parties to
create

Inc.

v.

Larrimore, 628 A.2d 215, 220 (Md. 1993) (citation omitted).

We

have

a

security

already

found

language

wherein

funds,

a

interest.

that

insurance

Tilghman

the

Deed

security

of

interest

proceeds,

or

Hardware,

Trust
was

did

not

granted

contain

in

miscellaneous

escrow

proceeds.

Therefore, Birmingham’s argument with respect to the application
of Maryland law is unavailing.
Finally, the policy arguments that Birmingham puts forth
are

similarly

ineffective.

Birmingham

asks

this

circuit

to

ignore various cases that characterize escrow funds, insurance
proceeds, and miscellaneous proceeds as “part and parcel” of
real property.

Appellant Br. at 44 (citing In re Kreitzer, 489

B.R. at 704; In re Ferandos, 402 F.3d at 151; Davis, 989 F.2d at
211;

In

re

Rosen,

208

B.R.

345,

354

(D.N.J.

1997)).

Additionally, Birmingham relies on In re Escue, 184 B.R. 287
(Bankr. M.D. Tenn. 1995) to contend that the bankruptcy court
erred

by

not

finding

issue

constitute

that

the

supplemental

pertinent

incidental

collateral,

legislative history of the Bankruptcy Code.
48-49.

in

light

items

at

of

the

Appellant Br. at

The Escue decision came before §§ 101(13A)(A) and (27B)

were enacted, however.

Furthermore, as with many of the other

cases that Birmingham has cited, the deed of trust at issue in
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Escue expressly created a security interest in certain fixtures
with granting language that is wholly absent from the Birmingham
Deed of Trust.

Consequently, Birmingham’s reliance on Escue is

misplaced.
Characterizing

escrow

funds,

insurance

proceeds,

and

miscellaneous proceeds as additional security for § 1322(b)(2)
“would completely eviscerate the anti-modification exception of
§ 1322(b)(2) because many deeds of trust which encumber improved
real property contain these provisions to protect the lender’s
investment

in

the

real

property.”

(internal quotation marks omitted).

Akwa,

530

B.R.

at

313

Moreover, as the district

court noted, Congress did not intend for Birmingham’s position
and “this principle cannot be squared with an interpretation
that would render the anti-modification provision inapplicable
to virtually all residential mortgages.”

J.A. 682.

IV.
The Deed of Trust on Birmingham’s residence is secured only
by real property that is also Birmingham’s principal residence.
Escrow funds, insurance proceeds, and miscellaneous proceeds do
not constitute additional collateral.

Accordingly, Birmingham’s

complaint fails to state a claim for relief that is plausible.
For

the

foregoing

reasons,

the

district

court’s

judgment

is

affirmed.
AFFIRMED
24